Tax system 'to be simplified to encourage investment'

The "spaghetti bowl" of UK tax law is to be simplified to cut the burden on business and attract foreign investment, George Osborne has said.

The chancellor is setting up an Office for Tax Simplification to streamline the 11,000-page tax code.

He said Britain had "one of the most complex and opaque tax codes in the world" and it needed to be simplified.

Labour said it backed more simplicity but claimed ministers were bringing in complex new taxes at the same time.

The new body will initially conduct two reviews - the first looking at all 400 tax reliefs, allowances and exemptions in the system to see how they can be streamlined, and the second finding ways to simplify the tax system for small businesses, including finding a simpler alternative to the controversial IR35 code.

Announcing the new body at a press conference, Mr Osborne said his "dream" was "that people might actually understand the tax laws which they were being asked to comply with".

It will advise ministers where the tax system is too complex but it will not look at tax credits, which Mr Osborne said he considered part of the benefits system.

'Economic boost'

The chairman of the body will be former Conservative MP and Treasury minister Michael Jack and its director will be John Whiting, formerly of PricewaterhouseCoopers, who is tax director at the Chartered Institute of Taxation. Neither will be paid.

The government says the tax system became a "hindrance" to business under Labour, and that by simplifying it and making it more competitive for small firms it would stimulate economic growth.

In a speech, Treasury minister David Gauke said: "The tax system created by the previous government was overly complex and has made the tax affairs of millions of families and businesses across the UK extremely complicated.

"We need to reduce the complexities in our tax system and the coalition is committed to delivering that goal."

The OTS's remit covers UK taxes and duties administered by HM Revenue and Customs, but it will not deal with tax credits or taxes administered by other bodies nor will it have any influence on setting tax rates.

Shadow Chief Secretary to the Treasury Liam Byrne said he welcomed the thrust of the government's plans to simplify the tax system, but he said "today's announcement, I'm afraid, sounds rather more like an attempt to grab headlines than real evidence of a push to improve legislation".

He called on the government to scrap plans to "complicate the tax system by introducing a marriage tax allowance, all for the sake of sending an ineffective £3 a week signal of what his party thinks a family should look like" and what he said was a "more complicated stamp duty system when it comes to energy conservation for housing".

And he asked how the new body fitted with Mr Osborne's "push for a bonfire of the quangos" and demanded to know how much it would cost to set up.

Mr Gauke said the OTS would be paid for out of existing budgets.

No 'overnight miracles'

The TUC union body said it was concerned the OTS could become a "softening-up exercise for tax cuts for the rich".

But its launch was welcomed by business chiefs.

Richard Baron, of the Institute of Directors, said it was "a brilliant idea" but that it would be judged by its results.

David Frost, director general of the British Chambers of Commerce, said it was "a necessary and long overdue response to the relentless chop and change of tax law".

Tax lawyer Robert Macro, a partner at Dawsons LLP, said the new system would not provide any "overnight miracles" in terms of cuts as the UK tax system was "fit to bursting".

In his first Budget last month, Mr Osborne set out plans to reduce the headline rate of corporation tax by 28% to 24% over four years in an effort to show Britain was "open for business".

But this will be partly paid for by cuts in capital allowances, which provide tax breaks to firms investing substantially in operational assets such as machinery. Critics say this will penalise small and medium-sized manufacturing firms.

In May the government set up the Office for Budget Responsibility, to provide the government with independent forecasts of UK economic growth and public deficits.